In 2015, a hike in Hong Kong's countryside sparked an idea that would change the face of crypto trading. Mathematician and BitMEX co-founder Ben Delo was on a hike with friend and derivatives trader Bavik, grappling with a problem that had been plaguing him for months. BitMEX had been experimenting with various futures contracts, but customers kept complaining about positions closing unexpectedly. They wanted a product that resembled spot trading but offered the leverage of derivatives.
Delo asked, "What if a future never expired?" Bavik's response was immediate: "Mathematically, it would be worth infinity." However, he also proposed a solution - charging traders the bitcoin overnight rate. The issue was that this rate didn't exist, so Delo set out to create it. This marked the beginning of one of the most significant financial innovations of the 21st century.
To understand the impact of the perpetual swap, it's essential to consider what BitMEX was trying to achieve before becoming the most liquid bitcoin market. Founders Delo and Arthur Hayes aimed to provide a platform for institutional hedgers, but instead, they attracted sophisticated retail traders seeking high leverage and speculation. By Halloween 2015, BitMEX was offering 100x leverage, thanks to Delo's real-time margining system. The perpetual swap, launched in May 2016, was a game-changer.
It introduced a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Initially, the funding rate was derived from third-party lending markets, but as demand for long exposure grew, the mechanism needed adjustment. Delo dynamically adjusted the funding rate, looking inward at how the swap was trading rather than relying on external lending markets. This approach allowed the exchange to measure the implied basis and back-calculate the annualized rate.
The solution was elegant, providing market makers with notice of how the rate was calculated and when it would be charged. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core.
The concentration of liquidity was a direct result of the swap's design, which consolidated market maker capital into one instrument. Competitors took notice, and soon every major exchange in crypto offered its own perpetual swap, built on the funding rate architecture that Delo had created. The fact that every other exchange has copied the swap is a testament to its financial innovation. With the product now attracting traditional finance regulators' attention, Delo believes that once they see the benefits, it will be impressive.